Ad Tax Talking Points

The proposal released by the Senate Finance Committee would allow businesses to deduct only half of their advertising costs in the first year and amortize the balance over a five-year period. A tax reform bill being developed by Congressman Dave Camp, the Chairman of the House Ways and Means Committee, would impose a similar tax on our industry – advertisers could deduct only half of their advertising costs in the first year and amortize the balance over a ten-year period. Currently, advertisers may deduct 100 percent of their ad costs each year.

We are disappointed that the Senate Finance Committee draft and the plan from the Chairman of the House Ways and Means Committee both propose changing the current tax treatment of advertising. For nearly 100 years since its inception, the Tax Code has defined advertising as a fully deductible cost of doing business. Advertising is an ordinary and necessary business expense, just like salaries, rent, utilities and office supplies.

Advertising drives $5.8 trillion in U.S. economic output and supports 21.1 million of the 136.2 million jobs in the U.S.

These plans would have the net effect of increasing a company’s taxable income for every year in which new advertising is purchased. The portion of ad spending that is not immediately deductible would be counted as income for tax purposes. This will cost the advertising community multi-billions of dollars in increased taxes.

The proposals also do not consider that companies buy new advertising each year and would feel the brunt of this tax annually. Not only would they have less money to spend on advertising year after year, but media companies also would be impacted as advertisers would be forced to reduce their ad buys each year.

Nobel prize-winning economists who have studied the tax treatment of advertising specifically confirmed that making advertising more expensive would cause a decline in ad spending. Every $1 spent on advertising leads to nearly $22 in economic activity. Therefore, taxing advertising and diminishing these expenditures would only end up costing jobs.

At the request of The Advertising Coalition, the economic consulting firm of Lexecon, Inc., and its affiliates, Nobel Laureates Dr. Kenneth Arrow of Stanford University and the late Dr. George Stigler of the University of Chicago examined the economic effect of a change in the tax treatment of advertising expenditures.

The Advertising Coalition (TAC) is comprised of media companies and national trade associations whose members are advertisers, advertising agencies, advertising clubs, broadcast networks, cable operators and program networks, and newspaper and magazine publishers. These companies and associations share a common objective – to protect advertising from initiatives by the federal government to tax or restrict the content of advertising.